Air India Homecoming

"The Tata Group winning the bid for Air India is great news! While admittedly it will take considerable effort to rebuild Air India, it will hopefully provide a very strong market opportunity to the Tata Group’s presence in the aviation industry. Mr J.R.D. Tata would have been overjoyed if he was in our midst today."

-Ratan Tata,
Chairman Emeritus,
Tata Sons.

The central government on Friday 8th October 2021 announced the privatization of the Air India group. Much anticipated Tata Sons, being the highest bidder was handed over the ownership of Air India and its subsidiary Air India Express by the central government. The airline company has returned to its initial owners. The salt-to-software conglomerate acquired Air India for an enterprise value of Rs.18,000 crores. The enterprise value of an unlisted entity is the sum of its equity or net worth and total debt minus cash & equivalents on its books.

Divestment can be said to be a first step in the government’s initiative to privatize its various undertakings. Of the total agreement amount, the acquirer has agreed to pay Rs.2,700 crores in cash and Rs.15,300 crores will be settled by debt. In addition to the Rs. 18,000 crores, Tata Group has also agreed to settle the Capitalized Lease Agreement worth Rs.9,185 crores for 42 leased aircraft including the Boeing 787 Dreamliner.

Tata Sons will also receive a low-cost subsidiary “Air India Express” and a 50% stake in ground handling firm AISATS (Air India Sats Airport Services Private Limited). If you are wondering what will happen to the current employees of Air India and Air India Express, Tata Group shall retain the current 12,085 employees of Air India and 1,434 employees of Air India Express for the next year followed by a possible VRS scheme. The Tatas will also get ownership of iconic brands like the Air India Logo and the Air India Maharaja which cannot be transferred for the next 5 years. 141 aircraft, 4,486 domestic, and 2,738 international slots across major domestic and international airports are the other benefits passed on to the acquirer. However, the transaction does not include Air India’s non-core assets like the Land and Buildings. With around 25% market share Tata Sons, which operates the Vistara and Air India will become the second-largest airline in the domestic market and the largest Indian Airline on international routes. The Tatas are expected to bring professional management to run Air India and are also planning to restructure Vistara and Air Asia to streamline the aviation business.

Air India owed a total debt of approximately Rs.62,000 crores (Rs.47,000 crore long-term and Rs.15,000 crore short-term) and owned assets worth Rs.14,000 crores. After receiving Cash of Rs.2,700 crore the net debt comes to Rs.44,000 crores which will be transferred to a Special Purpose Vehicle named AIAHL (Air India Assets Holding Limited).

Both the entities are planning to complete the transaction by December end and give a boost to the government’s privatization plan.

Air India Homecoming

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